PRINCETON: University tempers spending in light of economic downturn

By Brian No, Special Writer
   Princeton University will delay several key construction projects and reduce pay raises to conserve money as it tries to ride out the worst economic downturn in recent history.
   Though there are no plans to cut the year-to-year operating budget or to freeze hiring, the university announced Monday that $300 million in construction projects will be cut from the school’s 10-year $3.9 billion capital plan that ends in 2016.
   ”We want to have the right equilibrium between resources and expenditures,” university Executive Vice President Mark Burstein said in a statement.
   Construction of both the neuroscience and psychology buildings next to the Icahn Laboratory on Washington Road will be delayed one year and will begin June 2010.
   Additionally, construction of an art museum storage facility on the Forrestal Campus, an art museum satellite near University Place and Alexander Street, the renovation of Green Hall on Washington Road and William Street, and new faculty and staff apartments at Harrison Street and Faculty Road will be delayed indefinitely past the 2016 end date of the university’s capital plan.
   Postponing construction projects will save money by allowing more time for fundraising and design improvements in efficiency, according to Mr. Burstein in a published report. The delays could also save money if construction costs fall.
   Princeton is not alone. Many other colleges and universities have announced their own measures to ride out the economic hurricane. Stanford University, for instance, said it will cut $45 million from its budget, and both Cornell and Brown implemented a hiring freeze.
   The news from Nassau Hall came in light of a spate of bad news from other schools that have been helplessly watching their endowments nosedive in recent months.
   Financial news outlets reported earlier this month that Harvard, Columbia, and Duke were selling off their private equity holdings to raise cash. Amherst College revealed that its endowment has fallen 25 percent since June 30, and Moody’s Investors Service projects that schools will lose 30 percent of their endowment this year.
   Princeton, too, has seen its $16.4 billion endowment shrink in the past few months, though by how much, no one is saying. University spokeswoman Cass Cliatt said the university only releases fiscal-year endowment figures.
   Comparatively, however, Princeton has hinted that it is not in as dire financial straits as some other schools. The day after Harvard president Drew Gilpin Faust raised eyebrows on Nov. 10 by forewarning the school of “unprecedented” endowment losses, Princeton posted a press release congratulating itself for being “prudent.”
   ”The country is seeing market declines of historic proportions, and we are not immune to this,” Ms. Cliatt said. “That said, we’ve done relatively well.”
   ”The people at Princeton and Yale have been less alarming than Harvard’s president, but we don’t have the numbers to back that up — whether or not those differences (in endowment losses) are real,” said Roger Kaufman, an economics professor at Smith College who studies university endowments.
   Ms. Cliatt said that, since June 30 and as of Nov. 12, Princeton’s endowment has lost about half as much as the public markets.
   ”Our best guess of losses during this period have never been more than — or equivalent — to gains we’ve experienced the last couple of years,” Ms. Cliatt said, cautioning however that that endowment figures shift constantly, especially in light of the volatile market.
   Based on Ms. Cliatt’s comments, Professor Kaufman said that would mean Princeton’s endowment was probably down a bit more than 15 percent of its value as of two weeks ago.
   Endowments are critical to universities because they support operating budgets. Many of the wealthier schools in America get a third of their operating budgets from endowments. Last year, Princeton derived 48 percent of its operating budget from its endowment payout.
   Nevertheless, Ms. Cliatt said Princeton’s endowment has been somewhat insulated in the economic downturn by the school’s relatively conservative spending rule, which says that the university will increase its spending per endowment unit by 5 percent annually with a target spending rate between 4 to 5.75 percent of the endowment.
   Though the university faces a difficult financial road ahead, like other schools across the country, its large endowment has helped assuage fears. Princeton has the largest endowment per capita, and the fourth largest overall, in the nation.
   ”It’s easier to be ‘prudent’ when you’re rich,” Professor Kaufman said.
   Princeton’s decision to halt construction projects could have an impact on the borough, however, because the university would stop paying construction code fees, a “significant” source of revenue for the town, according to Borough Councilman David Goldfarb.
   ”If university construction comes to a complete halt, it may result in layoffs at the construction code office,” Mr. Goldfarb said, adding that the university has been the largest generator of construction code fees for the borough in recent years.
   In fact, Mr. Goldfarb suggested that the university should continue to build as planned.
   ”The projected costs for construction projects would be lower because of the softening economy,” he said.
   A hold on university construction could also affect the number of jobs in the long term, university vice president and secretary Bob Durkee conceded. But both town and university officials also said that the university insulates the town from an economic downturn.
   ”One of the advantages this community has over many other communities is that the largest employer is Princeton University. It is by far the largest generator of economic activity, and it is very stable and will continue to generate economic activity even in challenging times,” Mr. Durkee said.
   Professor Kaufman said he expects the university would not negatively affect the local economy because the university is not cutting spending and is wealthy enough to maintain normal operations.
   ”Believe me. Princeton, N.J., will be much better off than Detroit, Mich.,” he added.
   Mr. Durkee also said the university will stick to the agreed upon formula — that is in place until 2011 — for its annual non-tax contribution to the borough. The university paid the borough $1.18 million this year.
   Still, Mr. Goldfarb said the university should do more to help out the borough during hard times.
   ”I think the university has to look at the local economy. In difficult times we may be calling on the university to do more to help,” he said. Specifically, he said he would like the university to increase its contributions to the borough.
   A major impact of the economic downturn on campus has been the sudden need for more financial aid.
   ”We have a great many students whose financial circumstances have changed,” Ms. Cliatt said, including students from all income backgrounds.
   She said that there are students whose parents have lost jobs and have lost their homes to foreclosure. Furthermore, she said the increased need for financial aid also comes from students who were not on aid before the economic crisis.
   University President Shirley Tilghman announced that the university will keep its need-blind, grant-only financial aid policy and will allocate an additional $3 million to $4 million this year for the increased need in aid.
   In a statement, Executive Vice President Burstein also left the door open to further possible measures in the future to confront worsening economic realities.
   ”The university is making prudent adjustments at this point, recognizing that further changes may become necessary later when we have a fuller understanding of general economic conditions,” Mr. Burstein said.